LAGONISI, Greece — The European Central Bank's chief economist said a Greek debt restructuring would be a "recipe for catastrophe" and blamed "vested interests" in Britain and the United States for fueling market pressure on the country.
As Greece announced deeper cuts, Juergen Stark said Wednesday that the struggling eurozone country's "debt sustainability is insured" as long as it fully complies with its internationally monitored austerity program.
Asked about the markets' hostility to Greek efforts, Stark said: "This is not the view of all market participants, to be very clear. This is a discussion triggered from London and New York. I don't know what is behind it — vested interests, people topping their books and so on. So it's more complicated than just (saying) what markets expect."
Stark made the comments during a financial conference at a resort near Athens.
Greece's Socialist government was told by the European Union this week to take urgent measures to keep its austerity program on target, as part of its commitments for the €110 billion ($156 billion) package of bailout loans it is receiving from EU countries and the International Monetary Fund.
Finance Minister George Papaconstantinou heeded the latest EU warning, and confirmed that additional austerity measures worth €6 billion ($8.5 billion) for 2011 would be announced in the coming days.
Greece on Tuesday vowed to slash its bloated civil service by 150,000 people by 2015 and effectively ended government jobs for life.
Papaconstantinou insisted that the latest measures would not include more across-the-board salary and pension cuts that have sparked numerous labor protests.
In Athens, police scuffled with striking municipal workers outside parliament and used pepper spray to disperse protesters.
Greece remains frozen out of bond markets by sky-high interest rates as investors fret that the country may eventually have to restructure its debt, which is set to top 150 percent of gross domestic product this year.
Stark said the restructuring option had not been properly thought through.
"Debt restructuring would wipe out part or all capital of Greek banks," he said. "So it would be a recipe for catastrophe."
He urged Greece to "double its effort" on structural reforms that critics say have been stagnating and insisted that the austerity measures would be enough to bring the country back on its feet.
"Greece is solvent," he said. "This is an important message."
Stark's comments underlined the split among European officials over whether Greece should consider delaying repayment of its crushing debt load. Jean-Claude Juncker, head of the eurozone finance ministers group, held the door open Tuesday to what he called a "reprofiling" of Greece debt — a voluntary extension of bond maturities.
Another top ECB official, Lorenzo Bini Smaghi, backed up Stark, saying even a "soft" or voluntary stretching out of repayment would be "devastating for overall financial stability," according to the Ansa news agency.
"Time has been wasted these past months in the search for a way out, for an easy solution, like restructuring the debt," Bini Smaghi was quoted as saying. He said government failure to pay all its debts would have "an immediate impact on the banking system."
Officials are concerned Greece's troubles could harm Europe's economic recovery by inflicting losses on banks elsewhere in Europe that hold Greek bonds.
European officials are weighing whether to give Greece another bailout. Last year's rescue loans were aimed at giving the country breathing space so it could return to borrowing from bond markets next year.
But it remains unable to borrow from private investors as its economy deteriorates and it struggles to meet the terms of the first bailout.
International debt monitors are currently in Greece to inspect the progress of cost-cutting reforms, and again warned that Greece needed to do more work to avoid sliding off target.
"We are in a situation where if we do not get this acceleration of structural reforms, the (budget) deficit will get entrenched at where it is now, around 10 percent," IMF monitor Poul Thomsen told the conference.
Thomsen acknowledged pain was unavoidable given the country's massive fiscal adjustment.
"It's impossible to deal with a deficit of 15.5 percent of GDP without having a recession," he said. "People are dreaming if they think you can do this kind of adjustment without having a recession."
Thomsen, dismissing skepticism from analysts, urged Greece to speed up its ambitious privatization program worth €50 billion ($71 billion) through 2015.
"Privatization makes a real difference. If the targets can be realized it would change very substantially the debt sustainability discussions," Thomsen said.
The government announced it had chosen a series of advisers for privatization projects — included Deutsche Bank and the National Bank of Greece as advisers for the sale of the state stake in the OPAP gambling monopoly; Credit Suisse and EFG Eurobank Equities for the privatization of the state lottery tickets company, and Credit Agricole and Emporiki Bank for the sale of its stake in the horse racing company.
Theodora Tongas in Lagonisi, Elena Becatoros in Athens, and David McHugh in Frankfurt contributed to this report.